RGGI Auction Price Falls Further

– By Michael Wysolmerski, Summer Intern from Yale, 
michael.wysolmerski@ctlcv.org

According to a June 11 Environmental Leader article, the Regional Greenhouse Gas Initiative (RGGI) auction price of CO₂ allowances for the first three-year control period (2009-2011) fell 9%, from $2.07 to $1.88, from the March 10 auction to the most recent auction, held on June 9.

This is the second consecutive drop in the price of CO₂ allowances, down from $3.23 per allowance at the June 2009 auction. The latest auction brought in more than $80.4 million.

The article blames the drop in power demand due to the recession for the decline in prices. According to the Wall Street Journal, the low price of natural gas and the lack of support of RGGI from federal proposals for a national CO₂ emissions cap further contributed to the lower price. A federal program would probably not supply a premium for regional allowances that would eventually be combined into the federal program.

As the article states, a study released by Environment Northeast projects that the RGGI states--Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont--could lose $3 billion in revenue in the aggregate if the Kerry-Lieberman Senate climate bill is passed. The Kerry-Lieberman bill, entitled the American Power Act, would establish a national cap-and-trade program.

RGGI’s website describes its program as the “first mandatory, market-based CO₂ emissions reduction program in the United States.” The ten participating states will require a 10 percent reduction in CO₂ emissions from the power sector by 2018.

Each state has its own CO₂ Budget Trading Program that is connected to the other states via CO₂ allowance reciprocity, meaning that a power plant can use an allowance issued by any of the states to meet its state program. The program also sets up an emission auction and trading system, so power generators can buy and sell CO₂ emissions allowances. The states then are to use the auction proceeds to support “low-carbon-intensity” solutions.

The Environmental Leader notes that the total proceeds from RGGI auctions are now more than $662.8 million, and that states are investing 60% of the proceeds in energy efficiency.

In Connecticut, that investment percentage is even higher. According to the RGGI website’s Connecticut investment page, Connecticut invests 69.5% of its auction proceeds in energy efficiency programs supervised by the Energy Conservation Management Board (ECMB) and administered by Connecticut Light & Power, United Illuminating, and the Connecticut Municipal Electrical Energy Cooperative. Furthermore, 23% of the proceeds go towards Connecticut Clean Energy Fund sponsored renewable energy programs. The fall in auction prices is clearly detrimental to alternative energy funding, and the issue sheds light on the interesting, perhaps unintended, play between federal and regional proposals that have similar goals.